Apple considering 2 options for its cash pile

Investors are increasing pressure on the company to return more to shareholders.

By Benzinga Mar 13, 2013 11:11AM
Payment Tetra Images SuperStockBy Tim Parker

On Tuesday, Appleinsider reported that Apple (AAPL) will initiate a share buyback program or increase its dividend in order to silence the legion of critics -- including David Einhorn -- who believe Apple should return some of its $137 billion in cash to its shareholders.

Apple is reportedly exploring options, but a stock buyback or increased dividend are at the top of the list. David Einhorn's plan has received consideration too. Dubbed the "iPref" plan, Einhorn's idea includes issuing perpetual preferred stock. Einhorn took Apple to court to block the company from bundling four separate issues into one proposal. Einhorn won the case.

Apple CEO Tim Cook called the suit a "silly sideshow," but sources said that Apple found the preferred stock idea interesting.

With the stock down more than 35% from its high and long-term investors wondering what happened, Apple is under increasing pressure to do something to return value to shareholders.

Whether that is through a stock buyback in order to put a floor under the stock -- a $30 cash dividend according to a rumor that made its way around Wall Street last week (see Benzinga) -- or the issuance of preferred shares, it's becoming increasingly clear that Apple knows it has to do something.

Bloomberg recently reported that Apple would announce its plans for its cash by April. According to the story, Howard Ward, chief investment officer at Gamco Investors Inc. said, "We're going to get an announcement from the company as to how they intend to reallocate some of their cash. They will put a floor under their stock at a higher price than it is today."  

But two investing titans don't necessarily believe that Apple has an obligation to bow to shareholder pressure.

In a CNBC interview, former GE (GE) CEO Jack Welch said, "They'd come after us, 'What are you going to do with all that cash?' Well, we're going to do a smart thing! Trust us!" Welch later added, "Apple deserves, after all they've done, a chance to deliver on all their promises."

Warren Buffett, who is known for keeping a sizable cash position for Berkshire Hathaway (BRK.B) had this advice for Tim Cook regarding David Einhorn: "I would ignore him. I would run the business in such a manner as to create the most value over the next five or ten years. You can't run a business to try and run the stock up every day." (See Benzinga.)

Apple was up 0.7% in morning trade.

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Mar 13, 2013 1:11PM
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